‘Greatest anxiety’ realized? Possible COVID surge could slow California’s economic recovery
The ongoing COVID-19 pandemic is likely to mean a slower than anticipated economic recovery in California, as the state’s unemployment rate remains stubbornly high this winter, a new UCLA Anderson forecast predicted Wednesday.
The state’s economy is seen as weaker late this year and early next year, then picking up in mid-2022, said Jerry Nickelsburg, forecast director and Leila Bengali, forecast economist.
The longer that a COVID-10 surge remains a threat, the more consumers are likely to be skittish about spending. Gov. Gavin Newsom called a winter surge his “greatest anxiety” during his economic summit last month.
The report echoes that feeling. “Even when there are few, if any, restrictions on businesses and individuals, elevated risk and a continued fear of infection dampens consumer demand and labor supply,” it said.
“This has been true during the delta surge and with what now appears to be a new winter wave of infections, ought to dampen the rate of recovery from what we expected in our September 2021 forecast.”
The state may not see a full economic recovery from the pandemic, which began in March 2020, until 2023.
The forecast assumes that “the current (COVID) surge will abate through the fall and a new winter surge, smaller than before, will take its place. This, along with news reports on breakthroughs and the large number of Californians not vaccinated will likely push a full recovery into the early part of 2023.”
The omicron variant has begun to be apparent in California, contributing to the uncertainty.
Jobs, inflation outlook
California’s recovery has been hamstrung by several factors. Shipping lanes have been clogged, helping create a supply chain crunch. Drought has hurt the agriculture sector. And tourism has continued to lag.
The state’s unemployment rate in October, the latest data available, was 7.3%, tied for the highest in the nation and well above the national rate of 4.6%.
If COVID remains a threat “job growth will slow in sectors with high levels of personal contact and in sectors that cater to tourists, as comparatively few international tourists are expected to arrive in California this year,” the forecast said.
It did offer a bright note. As people refrain from in-person activity, there will be more demand in the logistics industry. That’s why “We expect solid growth in this sector, especially as the ports continue to work through backlogs.”
The report predicts the state’s unemployment rate will average 7% over the last three months of this year, falling to 5.6% next year and 4.4% in 2023.
Prices are also expected to continue increasing at their fastest pace in years. Nationally, the Consumer Price Index went up at its steepest annual rate in 31 years last month.
The forecast expects inflation to be “higher than in the past, but largely below inflation in the U.S.” It sees annual increases of 4% this year, 4.1% next year and 2.9% in 2023.
This story was originally published December 8, 2021 at 6:36 AM.
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